Stock Market Today: Treasury-Rate Tumult Trips Up Stocks

Another dip in Treasury rates, as well as a surprisingly weak report on the employment front, rattled equity markets on Thursday.

The 10-year Treasury yield dropped below 1.25% today – marking its lowest point since February – before settling down 3 basis points to 1.29%, still well below where it started July (1.44%).

"The sharp drop in yields reflects the market’s concern that the Fed will begin tapering soon, and that the removal of liquidity from the system will create volatility and a rush out of risk assets (like equities) and toward safe havens (like government bonds)," says Chris Zaccarelli, chief investment officer for registered investment advisor Independent Advisor Alliance.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Also weighing on sentiment were unemployment-benefit filings for the week of July 3, which rose slightly to 373,000 from 371,000 the week prior and easily outstripped consensus estimates for 350,000 claims.

But while the major indexes opened on pace for their worst daily performance in months, they managed to regain some composure by the close. The Dow Jones Industrial Average fell by more than 1.5% at its nadir, but ended the day with a slimmer 0.8% decline to 34,421. The S&P 500 (-0.9% to 4,320) and Nasdaq Composite (-0.7% to 14,559) also finished off their lows.

"A market moment, not a trend setter," says George Ball, chairman of Houston-based investment firm Sanders Morris Harris. He described Thursday's yield decline as mostly technical in nature, chalking it up to repositioning by portfolio managers who expected 10-year rates to rise and held short positions in bonds.

Sign up for Kiplinger's FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.

"With the Federal Reserve reiterating its patient stance on tapering in Wednesday's minutes report, many portfolio managers changed course and covered their short positions in bonds, which drove up bond prices and pushed yields down," Ball says.

Other action in the stock market today:

• The small-cap Russell 2000 declined 0.9% to 2,231.
• Railroad stocks were notable decliners in today's trading. This comes after the Biden administration issued an executive order asking the Federal Maritime Commission and the Surface Transportation Board to address consolidation and what it believes to be aggressive pricing in the shipping and railroad industries, according to the Wall Street Journal. Kansas City Southern (KSU, -7.9%), CSX (CSX, -6.2%) and Union Pacific (UNP, -4.4%) were among those that closed lower.
• The semiconductor sector also struggled today, dragged down on concerns the pace of the global economic recovery might be slowing. Advanced Micro Devices (AMD, -0.9%), Intel (INTC, -1.0%) and Micron (MU, -1.4%) were among the chip stocks that lost ground today.
• U.S. crude oil futures gained 1.0% to settle at $72.94 per barrel.
• Gold futures slipped 0.1% to finish at $1,800.20 an ounce, snapping their five-day winning streak.
• The CBOE Volatility Index (VIX) enjoyed a sharp 16.2% jump to 18.82.
• Bitcoin suffered alongside equities, falling 4.6% to $33,007.18. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.

Should You Sweat Declining Rates? Not Yet.

Other market experts weren't racing to sound the alarm, either.

"The economy is in transition, and while transitions may be bumpy they need not spell turmoil in my view," says George K. Mateyo, chief investment officer of KeyBank. "More specifically, the economic surge is transitioning to a slower yet more stable trajectory as the pandemic moves further into the rearview mirror … although it hasn't completely disappeared, for sure."

"We're maintaining our existing overweight position in stocks," adds Richard Saperstein, chief investment officer of New York City-based wealth advisor Treasury Partners. "It's not just because there is no alternative – rather, companies are seizing the post-COVID opportunity and putting up impressive earnings growth."

Still, if you're looking to tamp down on risk a skosh while still remaining nimble, you might consider exchange-traded funds (ETFs).

The primary benefits of ETFs remain the same as they've always been: easy diversification across dozens, hundreds or even thousands of issues, and (typically) low fees. That helps make picks like our Kip ETF 20 perfect for investors building a core portfolio.

But the ETF world offers a wider variety of products compared to mutual funds, allowing you to be tactical, too.

On the one hand, investors looking to cover their behinds will appreciate funds such as buffered ETFs, which are designed to limit losses. On the other, those that see today's stumble as a mere blip and still want to hit the gas can make fairly aggressive plays, such as buying the biotech space.

Biotech funds offer a tempting blend of safety and potential, holding scores of names that could be one trial announcement away from popping … without the risk of a single stock torpedoing your portfolio. And these nine biotech ETFs in particular provide a variety of ways to play the latest breakthroughs in healthcare.